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Buying out-of-state bonds
Q
My home state is CT. My advisers often tell me that a purchase of out-of-state bonds will be better than acquiring more CT bonds. When I ask why, I can never get an answer that completely satisfies me. They mention diversification, ratings and AMT but does it always come down to personal judgment? Is there a more technical answer? Also, I am considering buying Nuveen MuniPreferred (CT or not?) for some short-term funds. Do you have any comment on that?
A
James A. Klotz responds:
We must confess that we also can’t understand why your advisors would recommend out-of-state municipal bond purchases to a Connecticut resident. The state has enough issuers to provide ample diversification and enough insured bonds to provide more than adequate security without shrinking your yield by paying state taxes on your tax-free income. We think that the Nuveen Preferred funds make sense as a “parking place” for funds awaiting investment. Nuveen offers a Connecticut version of this fund. Please be aware that these funds differ from traditional money market funds and can only be liquidated on specific dates.
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